Chapter 1-6 Flashcards
What are the two different kinds of management biases?
Aggressive Accounting: downplay negative and focus on positive
Conservative Accounting: downplay positive and focus on negative
What are the two fundamental qualitative characteristics of accounting?
Relevance and representational faithfulness
What is relevance?
-Info makes difference in decisions (materiality)
-Predictive/confirmatory value
What is representational faithfulness?
-Transparence
-Completeness
-Neutrality (in standard setting/info does not favour a party)
-Freedom from error (reliability)
What are the three steps to ensure information has relevance and representational significance?
- Identify the economic event or transaction
- Identify the type of info that would be relevant and can be faithfully represented
- Assess whether the information is available
What are the enhancing qualitative characteristics?
- Comparability: info measured and reported in similar way
- Verifiability: independent users achieve similar results
- Timeliness
- Understandability: users with reasonable knowledge understand the info, quality and clarity
What are the financial statements of IFRS vs ASPE?
IFRS: statement of profit/loss, other comprehensive income, financial position, changes in shareholder’s equity, cash flows
ASPE: income statement, balance sheet, balance sheet, statement of retained earnings, cash flow statement
What is the economic entity assumption?
-Economic activity can be identified with unit of accountability (company, individual etc)
-Legal entities can be merged for financial reporting purposed
-Defining factor is who has control
What is control according to IFRS? ASPE?
IFRS:
-Having power over investee
-Rights to returns from involvement with investee
-Ability to use power over investee to affect their returns
ASPE:
-Continuing power to determine strategic decisions
-Demonstrably distinct can the entity be dissolved by company
-More than 10% ownership interest
What is the revenue recognition principle?
5 Step Approach:
1. Identify the contract with the customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the price to each performance obligation
5. Recognize revenue when each performance obligation is satisfied
What is the matching principle?
-Expenses matched with revenue they produce
What are the 5 measurement principles?
Periodicity assumption, monetary unit assumption, going concern (business will continue to operate), historical cost principle (measured at amount paid), fair value principle, and full disclosure principle
What is OCI and what does it include?
Other comprehensive income. It includes unrealized gains/losses on securities, foreign exchange etc.
=comprehensive income - net income
When does an asset qualify as held for sale?
-Plan to sell exists
-Available for immediate sale
-Active search for buyer
-Sale probable within year
-Reasonably priced and actively marketed
-Changes to plan are not likely
*depreciation not recognized on these
*in IFRS classified as current
What is the journal entry for a warranty (assurance vs service)?
Assurance:
DR Warranty Expense
CR Warranty Liability
Service:
DR Cash
CR Unearned Revenue
